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Big Tom

Financial Meltdown

400 posts in this topic

Let's see, what's the casualty list so far?

3 of the top 5 U.S. investment banks are no more.

The 6th is in merger talks.

The nation's largest savings and loan, Washington Mutual is being auctioned off.

Fannie and Freddie hold half the nation's mortgage debt and have required $200 billion from the full faith and credit of the U.S. Government.

The U.S. Government seizes control of one of the World's largest insurers with 74 million customers.

Anybody else a little more concerned with this than Troopergate or Obama Waffles?

One of the scarier things was GWB announcing a press conference on the issue Tuesday and cancelling it after all the reporters were seated. Umm....nevermind.

I'm burying some cash in the back yard. eek

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Sounds like bad policy to me!

My plan:

1. Stock the HOUSE full of food, top to bottom.

2. Gather guns, shells, fishing lures, fake leeches, couple poles, and get ready to gather some game like the good old days.

3. Hit the bank, take ALL my money out, put it under my pillow, and hope my house doesn't burn down.

.

.

.

4. If I can come up with enough gas money to make it to the polls, I'm voting for OBAMA

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Sounds like bad policy to me!

My plan:

1. Stock the HOUSE full of food, top to bottom.

2. Gather guns, shells, fishing lures, fake leeches, couple poles, and get ready to gather some game like the good old days.

3. Hit the bank, take ALL my money out, put it under my pillow, and hope my house doesn't burn down.

.

.

.

4. If I can come up with enough gas money to make it to the polls, I'm voting for OBAMA

Panicking wont help the situation. frown

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There is more to this than just a presidency. We are not investing in the same things that we invested in the past. Instead of Brick and Mortar(manufacturing plants etc) we are investing in banks, various services, and the management of buying and selling of overseas products. Those things are not as stable as what was traditional and obviously fluctuate dramatically. Just look at what happened a few years back with the ".com boom and bust".

Since we are investing in what is pretty much just a plan of action there may need to be more overseeing of how things are done. I am not a huge fan of more regulation, but as what the economy is and how it functions changes, there may need to be more scrutiny of what is happening, and perhaps implementing some rules for the game.

I have taken a huge hit in the last couple of days. With what happened around the 1st of the year and what is going on now, pretty much 4 or 5 years of gains are wiped out. Makes me sick to look at our portfolio.

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isn't it nice to see when I look at my 401 k that i have lost 26% for the year?? makes me sick!

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Let's see, what's the casualty list so far?

Fannie and Freddie hold half the nation's mortgage debt and have required $200 billion from the full faith and credit of the U.S. Government. T

Franklin Delano Raines (born January 14, 1949 in Seattle, Washington) is the former chairman and chief executive officer of Fannie Mae who served as White House budget director under President Bill Clinton. He is currently employed by Barack Obama's Presidential Campaign as an economic adviser.

Birds of a feather.

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He must be good!Clinton left with excesses!

Obama's wise to get help from the clinton people!

Now isnt it true with our current Admin.its spend,spend,spend,.The profits will trickle down?

Sure does 814 billion bail outs SO FAR!

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Whats it cost us tax payers so far?? 814 billion! I wonder what those CEOs are walking with??

If we are bailing them out they should be walking out with nothing, but the truth is I doubt that will be the case mad

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Originally Posted By: sparcebag
He must be good!

Fannie Mae, a shining example of how good.

I'm having a little problem with this one Uncle Bill seeing as the chief executives of Fannie and Freddy were Daniel Mudd and Richard Syron at the time of the collapse. confused

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Originally Posted By: sparcebag
He must be good!

Fannie Mae, a shining example of how good.

Didnt go down under him.It was deregulation,spectulation BAD reasoning! with the current Admin! and with investors who spend others money without reguard,and the belief that spending trickles down to the Avg.joe when in reality it only opens up large profits with no trickle down but more wild investing increasing costs of all products.

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Originally Posted By: Uncle Bill
Originally Posted By: sparcebag
He must be good!

Fannie Mae, a shining example of how good.

I'm having a little problem with this one Uncle Bill seeing as the chief executives of Fannie and Freddy were Daniel Mudd and Richard Syron at the time of the collapse. confused

Let me refresh your memory.

Apr 18, 2008 9:50 am US/Pacific

Ex-Fannie Mae Chief To Pay $24M In Fed Settlement

WASHINGTON (AP) ― Former Fannie Mae chief Franklin Raines and two other top executives are paying a total of nearly $31.4 million in a settlement with the government over their roles in a 2004 accounting scandal.

Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were charged with manipulating earnings over a six-year period.

Raines, a prominent Washington figure who was President Clinton's budget director, has agreed to pay $24.7 million, including a $2 million fine and relinquishing of company stock options valued at $15.6 million.

The amounts that Raines, Howard and Spencer are paying under the settlement are far less than what the government was seeking when it sued them in December 2006.

(© 2008 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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Did they get their money back? 32 mil is a drop in the bucket in comparison to the cost of the failor which was a no regulation decision from our govt. OUR CURRENT ADMINISTRATION

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Q&A with Fannie Mae's Jamie Gorelick

The vice-chairman sees "a very, very strong 2002" and says Fannie and Freddie are "managed safely"

In the wake of the Enron disaster, Federal National Mortgage Assn. (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac), the federally chartered mortgage banks that experienced explosive growth in 2001, have come under increased scrutiny. Once again, Republicans in Congress are threatening to conduct an investigation into the activities of the two -- No. 7 and No. 2, respectively, on this year's BusinessWeek 50 list of top performers -- some say in hopes of revoking the portions of the Fannie and Freddie charters that gives an implicit government guarantee to their borrowing.

BusinessWeek Associate Economics Editor Margaret Popper spoke with Fannie Mae Vice-Chairman Jamie Gorelick for BW Online about the prospects for the coming year. Edited excerpts from their conversation follow:

Q: Are you worried about attacks on the implied guarantee of the U.S. government that backs your credit?

A: From time to time, someone suggests changing our charter in some way that might affect the perceptions of our debt in the marketplace. The proposal that was on the table last year to do so got no co-sponsors. And given the importance of housing to the economy, the ballast we have provided to that sector, and the care that we take to operate in a safe and sound manner and consistent with our charter, I am not concerned that there would be any such legislation.

Q: What do you say to criticism that Fannie and Freddie control too large a portion of the mortgage market?

A: In terms of concentration, the largest banks have greater concentration than we do and are growing at a faster rate. The critical questions are whether we are managed safely, and would the kind of credit and interest rate risk that we manage be managed better elsewhere?

We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength -- without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions.

Also, we are very highly regulated. We have auditors. We have examiners here on premises every day. And we have consistently exceeded every standard that the examiners have set for us.

Q: How did last year's economic turmoil affect your credit losses?

A: We are very well protected against credit losses, which fell to their lowest level in a generation -- since 1983 -- last year. They went from four basis points [0.04%] down to under one basis point [0.01%] of our outstanding portfolio. We believe that while credit losses may rise somewhat in the aftermath of the recession, they are likely to remain quite low in 2002.

Q: And why is that?

A: Well, our business is backed by homes with a considerable amount of equity. When I tell people that our portfolio consists of homes with an average equity exceeding 40% of market value, they are astonished. And 35% of the mortgages have third-party credit enhancement.

So we carefully monitor potential areas of credit loss. We try to keep our portfolio balanced across the country so that any particular area of credit exposure doesn't disproportionately affect us. We hedge demographically, we hedge geographically, we hedge with third-party credit enhancement. We hedge with equity, and we are data hogs.

We also follow the trends in credit. We follow all the macroeconomic indicators to most effectively manage credit losses. So we're pretty confident that we should do fine. Obviously we don't have a crystal ball here, but we are basing our projections, which have been pretty accurate over the years, on the numbers we currently have available to us.

Q: In 2001, you had the advantage of falling interest rates and a refinancing boom to fuel earnings growth. Will your business fall off dramatically in 2002 without those phenomena to help it?

A: We have managed our earnings through every kind of interest rate environment. That's why during these past 15 years, with volatile interest rates and the economy going through good times and bad, we have had double-digit operating earnings per share growth over all those 15 years.

We do that because in some respects we are a naturally hedged business. When interest rates are dropping, [mortgage] originations rise. When interest rates are rising, there are fewer liquidations [because of mortgage prepayments]. Therefore, we have considerable ballast in our earnings.

We expect mortgage originations for 2002 to drop somewhat but still be the second-strongest year ever, at $1.6 trillion, and we expect mortgage debt outstanding to grow at almost 9%. So while it won't be the complete blowout year of 2001, we are expecting a very, very strong 2002.

Q: What's driving the housing boom?

A: Well, there are a number of factors. One, a lot of people have withdrawn their money from the stock market and decided to put it into homes. Second, I think there is a very strong nesting instinct that has been underscored by the uncertainties of the last six months. And finally, the demographics are very strong for increasing rates of home ownership and increasing housing prices.

If you look at the sources of supply and the places where builders can build, they're increasingly limited by public policy, and yet you have the demographics of our population in the peak home-ownership years.

Q: Aren't baby boomers getting older and downsizing their homes as their kids move out?

A: The highest rate of home ownership is among those in the 64-plus range, and then the next highest is age 55 to 64, both of them in the 80% range. We are seeing people principally staying in their homes. When they downsize, they don't downsize to a lower-cost property predominantly, although some do. They might move closer to the city, into a smaller unit.

But the investment in home ownership among baby boomers is quite high, and our data show that when you marry the high home-ownership rates among baby boomers with the echo boomers moving into the high home-ownership age range, it's very powerful. There is a huge jump in home-ownership rates between the ages of 35 and 44.

Q: If there is all this pent-up demand for housing, why would mortgage originations drop next year?

A: It's interest rate-sensitive, primarily. We think long-term rates will be in the 7% to 7.5% range. That is slightly higher than it was in 2001, but still very modest by historical standards.

So it's a good market for people refinancing to take cash out. It's a good market for people to continue to buy homes, and we expect new and existing home sales to decline very slightly.

New home sales were at 906,000 in 2001. We expect them to be at 892,000 in 2002, and similarly for existing home sales, a very small decline of 2.2% -- from 5.29 million to 5.18 million in 2002.

Q: If the Federal Reserve starts to raise rates, how would that affect your bottom line?

A: We essentially don't make interest rate bets. We spend more than half our revenues on hedges, which no other financial institution does -- with the exception of Freddie Mac.

We forego the potential bonanza [when rates are low] in order to have steady earnings growth in every interest rate environment. Last year could have been an absolute blowout to a greater extent even than it was, but we spent a good bit of that revenue on hedging future interest rate moves.

second sentence

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Did they get their money back? 32 mil is a drop in the bucket in comparison to the cost of the failor which was a no regulation decision from our govt. OUR CURRENT ADMINISTRATION

Ok, I had stop laughing long enough to respond.

Are you saying if a thief returns a portion of what they stole by way of a fine, they are no longer a thief ??

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September 11, 2003

New Agency Proposed to Oversee Freddie Mac and Fannie Mae

By STEPHEN LABATON

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.

''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.

The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.

At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.

Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.

After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.

''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.

Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.

Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''

The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.

Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

Copyright 2008 The New York Times Company Home Privacy Policy Search Corrections XML Help Contact Us Work for Us Back to Top

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GovTrack.us

TRACKRESEARCHGet InvolvedAbout GovTrack Bill Search:

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What's this?

The Congressional Record is the official journal of Congress's daily proceedings.

Though often a transcript of the debates on the House and Senate floors, like C-SPAN transcripts, the Congressional Record can be significantly modified by Members of Congress after the fact. Entries in the Congressional Record can reflect the edited, prepared versions of statements actually made on the floor, and on very rare occasions can contain seeming entire debates between Members of Congress that never took place.

Only floor proceedings are a part of the Record, and so committee meetings are not available this way.

Primary Source

This excerpt from the Congressional Record comes from THOMAS (section 16).

Congress > Congressional Record > May 25, 2006

FEDERAL HOUSING ENTERPRISE REGULATORY REFORM ACT OF 2005

The United States Senate

May 25, 2006

Section 16

In This Section...

Sen. McCain [R-AZ]: Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and...

Record Text

Sen. John McCain [R-AZ]: Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

Quick Info

S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005

Last Action: Committee on Banking, Housing, and Urban Affairs. Ordered to be reported with an amendment in the nature of a substitute favorably.

Status: DeadI join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

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''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

Nice.

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I get a kick out of how people like to blame the government for other people's reckless decisions. It's like me blaming someone on here for any (and all) financial woes I might have. Now, I don't have financial woes, but you all get the concept.

It sure is a nice, easy, clean way of putting blame on those who are independent or indirectly involved with the situation. Nice and convenient. Let's all blame the government for the guy who took out a mortgage on a house he couldn't afford and the bank who provided that loan.

"It's the government's fault that I couldn't afford the big expensive house I had built". "It's the government's fault I couldn't afford the ARM (adjustable rate mortgage) after the low rate was gone".

Does anyone take responsibility for their OWN actions anymore? Or are we all about playing the blame game and pointing fingers at others for our own shortcomings?

Let's have some self-respect and self-dignity here. We need to quit blaming government for all our hardships in life and accept responsibility for our own ineptitudes.

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I wonder with these banks and big insurance companies going under and others waiting in the wing to try to get bailed or get bought out or file bankruptcy what was the final nail in the coffin that put them over.

Could it be after the housing deboucle they invest the rest of the money had that hadn't already been lost to the housing and turn around and jumped on the band wagon of OIL. Now that oil has busted its balloon did they get hit with losses from the oil investments plus further losses from the housing market thus getting a double whammy.

This is just hypothisizing but with the way people are withdrawing their money from the oil market now at a rate that oil went up $6 yesterday makes you wonder hom many people lost their shirts in oil.

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I've been keeping up on the financial talk on some of the sites like msnbc, etc. And what they've said is that it's too complex to explain in detail.

I won't presume to know what happened. But the CEO's and boards of these companies sure have created one heck of a mess. I'm not to sympathetic of the companies that have gone under.

Like the old saying goes.....you reap what you sow.

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I think playing the blame game here gets a little tricky. Atleast with the collapse of AIG there are so many factors that came into play that assigning blame to one person/administration/corporation is impossible.

There are alot of major factors that lead to these downfalls.

1. Deregulation by the governement allowed companies to start playing a little fast and loose and getting into areas they should not have been in (mainly AIG's problem)

2. The companies deserve blame for poor decisions and little to know foresight into the dangers of the games they played. AIG went into an extremely lucrative sector of insurance (essentially insuring loans at the corportate level) but did not consider the ramifications.

3. Greed and poor ethics are always an issue in business, the rich are always looking to get richer.

After the bricks started to crumble at AIG the only real option at that point was a goverment bail out. With AIG holding billions of dollars in corporate insurance on loans a complete and sudden collapse would have had a major cascasde effect throughout the financial and corporate world and many others would have come down with them. I know most of you here are firm in your belief that government should be as small as possible and should stay out of the private sector but in this case they needed to step in. By doing so they saved other companies and private investors like us billions of hard earned investment dollars. AIG is still coming down, however with the $85 billion they received the government can now step in break it up and sell it off in an organized way to ensure that peoples investments and insurance policies are protected. So AIG and its direct investors are still taking a huge hit, it just won't cascade throughout the everything else like it would have if it all came down at once.

I am very interested to see what sort of regulations get put back in place to prevent this in the future. Both candidates where talking about the the problem of deregualtion the last few days. Although right after Palin said "we need to regulate..." she promptly said "we need to keep govermenent out of the private sector..." so we'll have to see which side of her mouth is the honest side.

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Originally Posted By: tacklejunkie

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

Nice.

bear that in mind when the democrats tell you medicare and SS are not in crisis

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